May 14, 2010

DISSERTATION PROPOSAL ON CHINESE SMEs IN AUTOMOTIVE INDUSTRY: EXPLORATION ON THE DIFFERENT STRATEGIES UPON THE DISAPPEARANCE OF OEMs

The working title of this dissertation is
initially drafted as: CHINESE SMEs IN AUTOMOTIVE INDUSTRY: EXPLORATION ON THE
DIFFERENT STRATEGIES UPON THE DISAPPEARANCE OF OEMs

At a continuum, the dynamism of SMEs is one of
the key factors for China’s economic growth. SMEs are now responsible for about
60% of the country’s industrial output and high employability rate (75%). In
addition, these SMEs are well-positioned to take full advantage of the
opportunities fashioned by China’s accession to WTO. However, achieving the
so-called success for these SMEs is still a blur especially for SMEs in
automotive industry. This is due to the fact that these SMEs depended heavily on
OEMs. But because of the intensive trade agreements with other nations, OEMs are
threatened to disappear. This has significant effects on SMEs, employment and
China’s further growth by and large. This topic for dissertation is chosen to
arrive at concluding on different strategies that these SMEs might utilize
especially when OEMs are totally wiped out.

2.0Background

Original Equipment Manufacturer or simply OEM
is an ambiguous phrase. Typically, this confusing phrase has two popular
meanings. The first one refers to a company that supplied equipment to other
companies to resell or incorporate into another product using the reseller’s
brand name. The other definition refers to the company that requires the product
or component and reuses or incorporates in into a new product with its own brand
name. Put simply, the companies that supply and acquire products and/or services
from manufacturers are called OEMs. This will be the accepted conception of OEM
that this dissertation will be going to use.

In light of the massive competition in the
global markets, OEMs are facing the challenge to maintain and further gain the
competitive edge. The difficulty lies in striking a balance between reducing
costs while improving features, functionality and performance. Exacerbated by
lower volumes, rapid New Product Introduction (NPI) cycles and fewer internal
resources, such OEM challenge is even harder for small and medium scale
enterprises (SMEs). Fernandes (2006) maintains that the potential cost savings
associated with offshore manufacturing and the global supply chain might be a
plausible solution for SME OEMs. However, this solution would be short-term.

At first, SME OEMs outsource operations to
North Atlantic countries, allowing them to maintain and enhance competitive
advantage by focusing and investing in growth initiatives such as product
development and marketing, effective management of costs and requisite capital
investments. For large OEMs, cost pressures brought by highly competitive
marketplaces prompted them to migrate to low-cost geographies like Asia. This
proved to be viable for several reasons including low labor costs for skilled
workers, manufacturing infrastructures equivalent to North Atlantic
infrastructures, real-time communications and proximity to component and
sub-assembly manufacturers.

These SME OEMs in addition faced issues of
product lifecycle and high levels of responsiveness to keep pace with the rapid
technology changes. Apart from this, product development and engineering
processes might suffer especially during the earlier stages of product
lifecycle. Depending on the nature of the industries they belonged to, SME OEMs
might have grater NPI and change requirements. In China in particular, locally
owned manufacturers master only but few core technologies and mainly compete in
economical segment. As such, the tough competition between these manufacturers
is the main reason for the continuous decline of prices and the eventual
profit-making level (Xuehong, 2007).

China’s automotive industry is said to be large
but weak. By 2006, there were 117 approved vehicle manufacturers with Shanghai
Automotive Industry Group as the biggest producer. Part supplying is the
business strategy more acceptable for these vehicle manufacturers. During
200-2005, the sales income grew by 36.82% on an average due to more than 6, 000
major parts suppliers and another 500 that enters the market each year. These
parts businesses are either owned by the state, joint or solely owned foreign
ventures or private with most of these privately owned businesses are SMEs.

The advantages and opportunities of these SME
OEMs are evident on focusing to cost-based competition, making quick decisions
and adopting differed strategies. In addition, they face a larger market that
includes both local and overseas orders while also the multinational suppliers
are shifting core technologies through relocating plants and purchasing local
parts. However, since they are relatively small in scale, they find difficulties
in serving state-owned businesses and joint ventures, failing to supply
integrated or modularized parts for the time being. These SME OEMs also lag
behind their foreign counterparts in terms of process management, quality
control and R&D.

Moreover, there are threats that might obstruct
these SME OEMs participation in the global supply chain. These are R&D,
production technology, quality control, environmental protection, professional
languages and communication, application of supply chain standards, creativity
of high caliber staff, lean production and cost control. Nonetheless, these are
exacerbated by the increased penetration of foreign OEMs in the Chinese market
that otherwise have the capacity to tap innovation, engineering and design with
respect to their financial capability which might result in the extinction of
local OEMs especially the SMEs (Peart, 2003).

This paper proposes to investigate what are the
different strategies that these SME OEMs would employ to revert the effects of
the increased concentration of foreign OEMs that otherwise intensify the
competition in China. Notable are: that over the last five years, China has
witnessed a significant increase in vehicle sales though most of the products
are owned by multinational names or produced by joint ventures and that export
has surpassed import since 2005 though most export are of lower added value. The
rationale behind this dissertation is to come up with various business
strategies of action for these SME OEMs so that they could cope up with domestic
and global competition.

3.0Theoretical Framework

This dissertation will be guided by the lean
manufacturing model since this research focuses on translating strategies
through adding value and quality to manufacturing processes. The features of the
lean manufacturing model are central on the elimination of wastes which will be
the key in optimizing processes while reducing costs. These are: overproduction
– production ahead of time; transportation – moving products that are not
actually required to perform the processing; waiting – waiting for the nest
production step; inventory – all components, work-in-progress and finished
product not being processed; motion – people or equipment moving or walking more
than the process required; overprocessing – because of poor tool or product
design creating activity; and defects – the effort involved in inspecting for
and fixing defects.

Diagram 1 Lean Manufacturing Model (Source:
http://images.google.com)

4.0Research Questions and Objectives

The key questions that this dissertation will
attempt to answer are: How could Chinese SMEs adopt their strategies without
relying on OEMs? What are the different business strategies that the SMEs could
utilize in order to maintain ‘a level playing field’ once OEMs departs? The
following specific questions will be answered:

1)How could Chine SMEs leverage their R&D
capabilities? What are the strategic roles of the local R&D centers?

2)Is the management of transferring of
know how feasible? or the protection of IP? How could these activities
contribute to the continuous growth of SMEs?

3)To what extent does local sourcing could
assists SMEs? How these could affect the quality of the produce? What are the
roles of the local suppliers?

4)How these SMEs could optimize the scale
of operations? How effective are the manufacturing processes?

5)Is increasing the density of sales
network and customizing product portfolio feasible? How could these endeavors
add value to the produce?

6)How could local regulations and laws
protect the SMEs against foreign OEMs?

The main purpose of this dissertation is to
arrive at different strategies that SME OEMs could use in their actual
operation. To achieve this aim, this research purports on accomplishing the
specific objectives as follows:

·To identify ways on how these SMEs could
leverage R&D, marketing and innovation and design

·To determine the role of lean
manufacturing in sustaining quality and therefore advancing the competitive edge

·To explore on the role of domestic
policies and rules on protecting the interests of SMEs

5.0Research Plan

The research plan will be guided by the
research process onion developed by Saunders et al (2003) in order to
arrive at the central issue.

Figure
1 Research Process Onion

Research Perspective

According to Saunders et al, there are
three research perspectives that the researcher could choose to apply:
positivist, interpretivist and realist approaches (2003). Provided that the
research is exploratory, I will be using the interpretivist approach.
Interpretivism is the most plausible approach for this because it allows the
search of the details of the situation to understand the reality or perhaps the
reality working behind them (Remenyi et al, 1998). The interpretivist approach
necessitates the exploration of subjective meanings that motivate people’s
actions in order to understand their actions.

Research Approach

The research approach that the research will
use is the inductive approach since the research focuses on building theories
instead on testing them. The inductive research emphasizes the understanding of
the meanings and the use of qualitative data. It also focuses on a more flexible
structure to permit changes as the research progresses.

Research Design

The timeline of the study is cross-sectional
because of time constraint in conducting the research. I will be collecting data
on more than one case through the use of questionnaires, semi-structured
interviews, structured observation and document analysis since these tools can
provide me the flexibility of focusing on the breadth of the research.

Research Strategy

Exploratory research will be research strategy
of this dissertation. The exploratory research will be used in the research.
This kind of research will enable us to look at the problem in descriptive and
exploratory manner. The descriptive nature of the study focuses on gathering
information about the present existing condition in order to describe the nature
of situation as it exists at the time of the study and to explore the causes of
the phenomena, making possible the utilization of formal observation. The
exploratory nature will facilitate us to investigate the different strategies
that these SMEs might use when local OEMs are defeated by foreign OEMs.

Data Collection

Qualitative data will be collected through
interviews and questionnaires to acquire deeper understanding of these
strategies of action. Primary and secondary research will be used also. The
primary data will be the results of the questionnaires and interviews after they
have been analysed. Primary data will be presented in the discussion sections of
the dissertation. Secondary data will come from the selection of books
especially business administration books, journals, newspapers and magazine
articles, related case studies, official statistics and the Internet. Data
collated from these sources will be subjected to contents analysis and will be
presented in the literature review section of the actual research.

Questionnaires will be utilized since it is
important to arrive at necessary details, acceptable to the subjects and
convenient to analyze and interpret. Hypothetical, probing and open-ended
questions as well as ranking questions will be included. Department heads of 5
Chinese SMEs will be sent with questionnaires as well as 2-3 Chinese authorities
that are responsible for SME business support. I have chosen to use
semi-structured interview because it allows structuring the interview before by
preparing the questions, but also it is possible to be flexible, if issues which
was not planned appears and it will provide me the advantage to further explore
themes as it emerge. Aside from the department heads, representatives from the
upper management of these 5 SMEs will be interviewed.

Validity, Reliability and Generalisability

To ensure the validity of the research, I will
make ascertain that the methods used and analysis with the particular attention
given to designing questionnaires and interview questions. SME as a business,
OEM and the automotive industry will be also studied to ensure that the
“findings are really about what they appear to be” (Saunders et al,
2007).

In providing other researchers to replicate the
results of this dissertation, the four threats to reliability will be lessened
if not totally eliminated. These are the subject of participant error, subject
of participant bias, observer error and observer bias. To ensure reliability, I
will plan the interview with high degree structure to minimize participant bias
and observer error. In interpreting and analyzing data without personal bias and
observer bias, independent analysis of the data through a blinded researcher
will be conducted.

I do not claim that the results and conclusions
of the research can be generalized since it includes only one country. Further,
the SMEs that will be surveyed and interviewed might use different strategies
fir to their organizations as well as the reason for implementing these
strategies.

6.0References

China’s Small and Medium Enterprises: Room
to Grow with WTO, American Embassy
in China, retrieved on 29 April 2008 from
http://www.usembassy-china.org.cn/econ/smes2002.html.